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The Honolulu Advertiser
Posted on: Tuesday, November 4, 2003

Strict spending rules won't help Honolulu

By most accounts, spending by the administration of Honolulu Mayor Jeremy Harris over the past decade or so has been anything but lavish.

Yes, there have been eye-attracting and sometimes controversial "beautification" and "vision" projects as well as feel-good sports complexes.

But the bottom line is that the city operating budget has grown relatively little over the past decade, and the number of city employees has actually decreased. Most new spending has come in unavoidable "fixed costs" such as retirement and health benefits and in the area of public safety.

Budget not out of control

So while there are arguments over whether the city is spending its money in the right place, whether its debt is too high or whether it has its priorities straight, there is little evidence that the budget process is out of control.

Thus it is somewhat puzzling that the City Council appears ready to pass two new laws that would place specific caps on city spending and borrowing.

The measures, known as Bills 61 and 62, are up for a full council vote tomorrow.

Given that Mayor Jeremy Harris is all but certain to veto both bills, a wiser course would be to pull them back and see if a spending-control formula could be developed that would satisfy both the council and administration. This is not an issue over which the two sides should be forced into pitched battle.

Djou prime mover

The prime council sponsor of the bills is Councilman Charles Djou, a former state legislator who based the legislation roughly on similar spending caps faced by the state.

Djou fears the city has been operating on a "credit card" philosophy and should be brought more closely in line with the economy that supports it. Djou wants both the council and administration to have a basic "benchmark" in mind as they write the budget.

Without that overall framework, he says, requests are dealt with on a piece-by-piece basis "and it's always easier to say yes."

But the specifics of his bills could cause more problems than they solve.

The first would limit city debt payments to no more than 20 percent of the "average" operating budget expenditure. That is just about where the city is today, but short of where it will soon be if projects already on the books are pushed forward.

The second would limit operating expenditures by a formula based on inflation plus population growth.

The problem, at least from the administration's point of view, is that neither of these two capping mechanisms meets the test of reality.

Projects would face ax

The debt limitation would require the cancellation of many projects already on the books and would clearly wipe out any effort by the city to build a major transit system.

In addition, bond counsel warns that formulaic caps of this sort could hurt Honolulu's current quality bond rating, leading to higher borrowing costs.

On the operating budget side, the city points out that inflation rates and population figures have little to do with demands on the city. A large chunk of the city's operating budget is beyond direct control because it is fixed costs such as insurance, retirement contributions, worker's compensation and the like.

Those bills come due no matter how much or how little the city is able to spend.

Beyond city control

Furthermore, salary costs are largely beyond the city's direct control since they are driven by statewide negotiations in some cases and by mandatory arbitration in others.

The council has recognized that realities will intrude into the most carefully crafted caps, so it has made provision for exceptions to be authorized in extraordinary circumstances. The first would be the cost of a new police contract.

But if you are going to impose a cap and then set up a process to ignore it, why bother in the first place?

The council already has the power to control spending through the budget process. It can authorize as many, or as few, construction projects as it wishes. That is a direct way of controlling borrowing.

As for the operating budget, everything outside of fixed costs is entirely up to the council's authority.

Fiscal discipline is a worthy goal. But achieving that discipline through awkward and inflexible capping rules does not make sense. The council should sit down with the administration and come up with a discipline plan that will work.